Rev. Rul. 73-38

P, a partnership organized under the laws of a foreign country is composed of (1) a general partner, GP, that is an investment management company also organized under the laws of a foreign country and (2) various limited partners, LP's, who are United States persons. The LP's acquire their interests in P by contributing a fixed dollar amount in cash to the capital of P and by executing an alleged guarantee contract with the foreign bank from which P borrows funds obligating each LP to repay (in an amount proportionate to the cash capital contribution it has made) P's indebtedness to such bank upon default by P. P uses the funds provided by the cash capital contributions and by its borrowings from the foreign bank to invest in debt or equity securities of entities of foreign countries. P has no office or other fixed place of business in the United States and is not engaged in a trade or business within the United States.

Held, an interest acquired by the LP in P by contributing a fixed dollar amount in cash to the capital of P is subject to the interest equalization tax imposed by section 4911 of the Code. Further, the execution of the so-called guarantee contract by the LP with respect to the indebtedness of P will not subject either P or the LP to the tax imposed by section 4911 of the Code. However, payments made by the LP in discharge of its obligation under the so-called guarantee contract with the foreign bank will subject the LP to the tax imposed by section 4911 of the Code. The amount of the acquisition, in such case, is the actual value of the payments made. It is also held that the acquisition of debt or equity securities of entities of foreign countries by P will not subject either P or the LP to the tax imposed by section 4911 of the Code.